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FROM MAGAZINE: Leveraging airport investment to drive growth

The recently concluded second annual Airport Council International’s ‘Investing in Airports’ conference witnessed several high-profile speakers from the aviation sector deliberate at length on economic regulation, privatisation of the airport industry, and lessons learnt from other regulated industries

SURYA KANNOTH

The case for investing in airports still remains a strong one. While financing airport infrastructure has been challenging for many countries, the involvement of private players has grown significantly over the years.

The recently concluded second annual Airport Council International’s ‘Investing in Airports’ held at the plush Planet Hollywood Beach Resort in Goa from December 6-8, 2016 featured sessions and panel discussions where high-profile speakers from the global airport fraternity deliberated at length on economic regulation, the investment horizon and the state of the airport industry, privatisation of airports in India, lessons from other regulated industries among others.

At the conference organised by ACI in cooperation with International Civil Aviation Organisation (ICAO) and the International Transport Forum (ITF), Angela Gittens, director general, ACI World, in her opening remarks, made the case for “fostering the right environment for investment in airports and ensuring that regulation evolves in step with the industry for a sustainable future with the ability to accommodate growth in the demand for air service.”

“While growth is expected to remain solid in mature markets over the medium term – most notably in North America and Europe – most of the growth is forecast to come from emerging economies. For the aviation community to overcome this challenge, investment in airport infrastructure and ground access will be necessary,” she said.

“The underlying question is who will bear the cost?” asked Gittens. “Despite good intentions on the part of national regulators, there are regulatory frameworks that create disincentives for private investment and the sustainable development of airport infrastructure.”

Highlighting India’s national civil aviation policy, Gittens said that India is a fast growing country and that other countries are keenly watching India’s expertise in managing its aviation policies and regulatory framework. She further stressed upon the fact that investment in airport infrastructure is of paramount importance.

In his keynote address, Roberto Kobeh Gonzalez, general director, SENEAM and Lifetime Goodwill Ambassador of ICAO pointed out that the growth in the APAC region places increasing pressure on the existing aviation infrastructure. “The growth in aviation traffic requires better use of existing infrastructure and inevitably the development of new infrastructure. There could be constraints on the availability of space to meet future demands. Bringing private investments, business reforms, private financial initiatives, public-private partnership will facilitate more sophisticated range of revenue streams for investors and stakeholders. More importantly, value creation of the improvement of the quality of services are cornerstone for many of these initiatives,” he said.

Gonzalez spoke about the rich experience that India has in building infrastructure on the PPP model. In his view, it is important for private investors to have flexibility to allow them to operate in the competitive environment with an expectation of reasonable return for the risk they are taking. “One also needs to take a close look at the modern authority or regulator should play to ensure prosperity in a viable way and to benefit the end user. Inorder to get a win-win situation, we need to work together,” he affirmed.

The two-day conference held a session on the current process of privatisation in India. The session, moderated by Amber Dubey, partner and head for aerospace and defense, KPMG India with an eminent panel of speakers including PS Nair, CEO-Corporate, Airports Sector, GMR Group; Rajeev Jain, CEO, GVK and S Machendranathan, chairman, AERA opened up an interactive discussion with delegates on whether India’s economic regulation fosters the sustained finance of infrastructure and capital investments.

A special presentation was made by Sidharath Kapur, president (finance and business development), airport sector, GMR Group, which emerged the highest bidder for Mopa Airport for the development and operation of Mopa Greenfield Airport in North Goa. “Going forward we expect a steep ramp-up in traffic till FY26, as airlines move from Dabolim to new Mopa Airport,” he said. The airport will be operational by FY2021.

Arun Mishra, regional director of the Asia Pacific region of ICAO; Stephen Perkins, Head of Research and Policy Analysis of ITF, Dr Harry Bush, independent advisor and former group director economic regulation of the UK Civil Aviation Authority also highlighted some key economic characteristics of the airport industry. Delegates also witnessed technical presentations on the importance of sustainably accommodating growth in the demand for air service.

The conference ended with closing remarks by Stefano Baronci, director of economics, ACI World, who stressed upon the need for optimisation of existing infrastructure at airports with equal involvement of airport co-ordinators, airlines, airports and States. “There is no one-size-fits-all formula, and in general, it is important to contextualise regulations in a specific market while ensuring a level playing field,” he said.

Baronci further added that intervention on the part of the regulator should be minimal which will help airports and airlines to engage in more commercial interactions. “Economic regulations should better reflect and anticipate market dynamics. In particular, airport competition has been increasingly involving both in terms of scope and intensity. This may imply moving towards less economic regulation whenever supported by airport market power. Thus, the regulator should intervene only when necessary and intervention should be proportionate to the problems identified. This would incentivise airports and airlines to engage in more commercial interactions allowing to work out the best solutions to the challenges that ultimately they hope to face together,” he concluded.